If your bank offers an overdraft facility, it is often too tempting to resist. Many people dip into their overdraft and some that live in their overdraft. If your outgoings are higher than the money you have coming in, or you are bad at managing your money, you will probably be consistently using your overdraft facility. Some banks are happy to extend overdrafts without asking many questions. If you have a less than perfect credit score or you are always going over your limit, you will likely keep extending your overdraft, often to the point where it becomes unmanageable.
Some consumers end up being a prisoner to their overdraft. They may escape it for a short period of time, but then find themselves back in it again quite quickly afterward. An overdraft of £200 can soon become £500, and before you know it, it’s up at £1,000, and you have no means of paying it back. If you are struggling to get out of the grips of your overdraft, these are some things you may want to consider.
Understand your Commitments
You mustn’t just go into your overdraft blindly; you should understand precisely what your overdraft is and the charges associated with it. Although it can be extremely challenging to escape an overdraft, it is essential to know what you are paying. You should also understand how this is affecting your finances and what you can do to improve this. Many people end up using their overdraft regularly, without an understanding of precisely what the charges are, and how this is affecting their credit score.
Some banks may offer you a 0% overdraft, depending on the size of your overdraft and your current credit score. It is worth checking what other banks provide, and consider switching if they offer something more appealing. It usually pays to look around, and if you feel that you can’t get out of your current overdraft, it is worth looking around to see what else is on offer with other banks. Compare the market, and find an account that works for you, and helps you improve your current financial situation. The interest rates will differ with each account and bank, and even if you can’t get a 0% overdraft elsewhere, you will probably be able to get a better interest rate than the one you are currently on. It pays to look around, and there are plenty of price comparison sites that will make the process easier.
Change Direct Debits
If you are continually using your overdraft, it might be time to take a look at your direct debits. Although you may end up with very little money in your account at the end of the month, it is better to pay all your bills, than dip into your overdraft. Speak to the companies you have direct debits with, and ask them to switch dates. If you get paid on the 31st, for example, it is more financially beneficial to set up your direct debits to come out on that date or close after; this means you have less time in the red, and fewer charges. Most of us don’t keep track of our direct debits, and this is what can end up causing the constant overdraft use.
Basic Bank Account
Most banks offer a basic account as an option, and as these don’t have an overdraft facility, it can make it easier to manage your money. If you need to spend a lot of time in the red and find it challenging to stay within your budget, a basic bank account might be the best option. Basic bank accounts are generally for people who have poor credit ratings, but anyone can request to open one of these. It can be too tempting to use an overdraft facility if it’s available, especially at times when money is a bit more tight than usual.
Reduce your Limit
If your bank is continuously allowing you to increase your overdraft, it can be challenging to take control of your finances. If you are increasing your overdraft and struggling to get out of it, it may be a good idea to request a reduction of your overdraft limit. If you have an overdraft of £1,000, for example, reduce it to £900, and then commit to reducing it slowly. It will be less tempting to spend if you know you don’t have anything available to spend. It is better to reduce your overdraft slowly, as this makes it more manageable.
Stick to a Budget
If you are using your overdraft regularly, it suggests that your incomings are not as high as your outgoings. It is commonplace for people to be unaware of exactly what they are spending, but sticking to a budget can help you stay out of your overdraft. There are free apps available which you can download onto your phone to help you keep track of your budget quickly and easily. Alternatively, you may prefer to stick to the traditional method of writing down your incomings and outgoings.
Investigate into what you’re spending, and if it is essential. You can easily get caught up with subscriptions for different things, and it is worth checking if you have signed up for anything you don’t use. If you are not using your gym subscription, for example, you may want to consider canceling it. It is also worth undertaking a price comparison to see if you could make any savings on your gas and electricity or other utilities. There are other small changes you can make to reduce your spending, including taking your lunch to work with you or cutting down on the daily lattes. The little, daily spending we often do without thinking, can soon add up. There are usually better options if you look around. For example, it can be cheaper to buy travel tickets online than at the station. It is essential to be smart about your spending, as this will help ensure you stay within your budget.
It can sometimes be more cost-effective to take out a loan to pay off your overdraft, but it is essential to check the fees and make sure you are not going to end up paying more. The positve aspect of a personal loan is that you’ll have a fixed repayment date, which makes it more likely that you will be able to pay it off. Overdrafts don’t have an end date, which is why many people keep them spiraling on and on. If you can get decent interest rates on a personal loan, it might make more sense to opt for this method, instead of an overdraft. It is essential, though, that you don’t end up paying, so work out what you will be paying back before you opt for a personal loan.
No one wants to see their savings disappear, but it can be more cost-effective to use your savings to pay off your overdraft than to keep incurring the charges associated with retaining your overdraft. If you are paying fees every month on your overdraft, it can cost a lot more in the long run. Generally, you should always pay off debt before you start saving, as it ends up costing more. When you are entirely debt-free, you can start thinking about saving your money. It may seem better to save money before you pay the debt, but it has the opposite effect. Not only will you end up with more costs, but you are also likely to have debtors on your back, which is bad for your state of mind.
Speak to Debtors
If you are paying off debt and it’s causing you to go into your overdraft, it may be worth speaking to your debtors to see if you can take a payment holiday or reduce your payments. If you are paying off debt with one company, and it’s causing you to go into debt with another, it is counterproductive. Most companies will be willing to negotiate. After all, the main concern is that you pay it, and if that means changing the arrangement temporarily, they will usually be willing to oblige. It is essential to be open and honest with debtors; it is more effective in the long run.
A credit card could be another alternative to an overdraft. If it works out cheaper, it might be a good idea to pay off your overdraft with your credit card. It is vital to ensure that you don’t end up paying more, though, so be careful when swapping one debt for another. If a credit card is less costly than a personal loan, it may be worth considering this.
Speak to Your Bank
Most of us avoid speaking to our bank at all costs, but by talking to them, you might be able to come to some arrangement with your overdraft. If you are struggling to get out the red, a conversation might be enough to reach an agreement about how to move forward to ensure you can pay it off. Most banks are willing to listen and to help if you are in financial trouble. It is their responsbility to support you, and they could face a claim if they’re not willing to do this.
Make a Claim
Did you know that you could qualify to claim if you are continually getting charged for exceeding your overdraft limit? Banks are regulated, and if you are facing hardship because of overdraft charges, you may be entitled to make a claim. There is no cost associated with making a claim, so even if you don’t win, you won’t be out of pocket. If your overdraft debts seem to be spiraling, it may be time to make a claim.
Understand Your Debts
It is essential to know what debts you have, and how much you are paying to each of these. The debts with the highest charges are the ones you want to aim to pay off first, as this will leave you with more money at the end of the month. Take time to sit down and understand what you owe, what you are paying, and what you need to pay first, as this will help you get out of debt quicker.
Your bank may be able to separate your accounts so that your account with the overdraft debt is different from your main account. You may need to switch banks if your current one isn’t able to accommodate this. If you split your accounts, it means that you will have one healthy account, and you can treat the other as a regular debt. It doesn’t make sense to have another overdraft on your main account, though, so either take a basic account or ask for that feature to be disabled. Separate accounts are a more effective way to manage your money.
With the spiraling costs, we have these days, it can be challenging to manage your money, and not get into any debt. As overdrafts are common and relatively easy to get, if you have a good credit rating, it can be too tempting not to make use of these. However, without realizing it, you could be paying charges which are causing your debts to spiral. It is essential to get a grasp on your finances, and this includes considering your overdraft, and what you can do to change your debt situation. When it comes to debt, it’s about awareness, and ensuring you know exactly what you are paying, and when you are paying it. If you are smart about your finances, you will be able to get out of your overdraft and reduce your debts in the process. Overdrafts may seem like a good idea, but they can cause you to end up suffering more financial troubles in the long run. It is essential to manage your overdraft efficiently and ensure you keep track of your finances so that you don’t end up facing financial hardship.